From: Silva, Tiffany Doon [tiffany.doon.silva@intel.com]
Sent: Tuesday, February 18, 2003 9:59 PM
To: rule-comments@sec.gov
Subject: Comments re File No. S7-50-02; Rule 10b-18 and Purchases of
Certain Equity Securities by the Issuer and Others
February 18, 2003
Jonathan G. Katz
Secretary, U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
rule-comments@sec.gov
Re: Release Nos. 33-8160; 34-46980; IC-25845; File No. S7-50-02;
Rule 10b-18 and Purchases of Certain Equity Securities by the
Issuer and Others
Dear Mr. Katz:
Thank you for the opportunity to comment on proposed rules published
in Release Nos. 33-8160, 34-46980 and IC-25845. On behalf of Intel
Corporation, we offer the following comments with regard to the rule
proposals in that Release.
Amendments Concerning the Scope of the Safe Harbor
The proposed exception making the safe harbor unavailable for purchases
effected from the time of public announcement of a merger, acquisition or
similar transaction (M&A Transaction), until the completion of the M&A
Transaction would most likely cause issuers to be unwilling to repurchase
their stock during that period. While issuers may repurchase their stock
outside of Rule 10b-18's conditions without engaging in manipulative
transactions, as the Commission recognizes in the proposing release,
issuers generally are reluctant to undertake any repurchases without the
certainty that their repurchases come within the safe harbor. It is not
uncommon for M&A Transactions to be pending for several months following
public announcement of the transaction due to, for example, the need to
obtain regulatory approvals. Companies may also be engaged in frequent
acquisitions and no single acquisition may be significant to the acquiror.
Yet, in both of these circumstances, companies could be prevented from
engaging in issuer repurchase programs for extended periods, potentially
seriously hindering the completion of targeted goals under the issuer's
repurchase program and negatively impacting market liquidity for the
company's stock.
The Rule 10b-18 safe harbor rests on a presumption that transactions meeting
the Rule's conditions are inherently non-manipulative. The Commission does
not explain why Rule 10b-18's existing volume, timing, price and manner of
sale conditions are not adequate to limit an issuer's ability to unduly
influence the price of its stock while M&A Transactions are pending. Moreover,
in circumstances where the M&A Transaction involves a "distribution" as defined
in Regulation M, Regulation M already bars issuer repurchases during the time
periods when market manipulation would be of the greatest concern in the M&A
Transaction. In any event, it is difficult to see why such an exception should
apply to all cash mergers or why the unavailability of the safe harbor should
continue past the valuation period for the issuer's stock. In either circumstance
the issuer does not have considerable incentive to raise the price of its stock.
We believe the Commission should eliminate the proposed exception for M&A
Transactions, or at a minimum, confine it to stock-for-stock transactions
involving a public offering and then only for the period when trading would be
restricted under Regulation M. If the Commission considers it necessary to
take the latter course, we would suggest that the Commission consider permitting
issuers with large daily trading volume (using the same definition proposed to
qualify for trading into the last half hour of the trading day) to continue making
repurchase transactions under the safe harbor with perhaps a lower volume limit
such as 10% of the ADTV.
Amendments to the Purchasing Conditions
With respect to the proposal to modify Rule 10b-18's timing condition by using an
ADTV value and public float value test, we commend the Commission for being flexible
and for recognizing that issuers with actively traded securities and large public
floats are less able to influence market prices and volume and therefore do not
need to be as restricted with respect to repurchases near the close of trading of
their stock. We also applaud the Commission's efforts to simplify and streamline
the Rule's pricing condition by removing the outdated definitions and pricing
provisions for securities reported in the consolidated system, which are based on
where the securities are traded.
However, because issuers with actively traded securities and large public floats
are less able to influence market prices, we do not believe the Commission should
eliminate the "last independent transaction price" alternative in the pricing
condition. The Commission is concerned that issuers could manipulate the market
by creating a floor price for their securities. In order for that to be possible,
issuers would have to prevent any other independent trades. For an actively traded
security such as ours, that is not a realistic scenario. Given Rule 10b-18's volume
limitations, which may be subject to further limitation as proposed in the Release,
we are unaware of any basis for the concern that an issuer with an actively traded
security could maintain a floor price for its security. Furthermore, bid prices
for actively traded securities change so frequently ("flicker") it is possible they
may not be used consistently and reliably in pricing transactions. Using the last
independent transaction price as a reference provides issuers with a reliable
mechanism for complying with Rule 10b-18.
Disclosure
The Commission's proposal to require very detailed disclosure of issuers' repurchase
activity would be unduly burdensome to issuers and it is unclear what additional
value this kind of disclosure would provide to investors. The Commission has not
explained why this level of detail with respect to issuer transactions is any more
significant than with respect to any other large market participants, e.g., mutual
funds, which are not required to provide such detailed information about their
transactions. While we recognize the market's desire to have complete transparency
into large trader's activities, the need for the market to have such information
must be balanced against the impact to the viability of issuers' repurchase programs.
Detailed disclosure of the data described in the Release could enable professional
traders to deduce issuers' repurchase strategy. This in turn could make it more
difficult for issuers to repurchase their stock at a fair price.
We do believe some level of disclosure of repurchase activity is of benefit to
investors. Regulation S-X currently requires disclosure of changes in stockholders'
equity on an annual basis, thus requiring issuers which conduct repurchase programs
to disclose the number of shares purchased and the purchase price for such shares.
As a matter of good practice, we also disclose how many shares remain available for
repurchase. We disclose this data on a quarterly and annual basis in the liquidity
section of Management's Discussion and Analysis of Financial Condition and Results of
Operations in addition to disclosing information in the footnotes to our financial
statements. We are also aware that several other issuers with large market
capitalizations currently disclose on a quarterly basis similar data regarding their
publicly announced repurchase programs. We believe this level of disclosure gives
investors the information they need about issuer repurchase activity, without being
burdensome and without getting into a level of detail that risks disclosure of
proprietary information about issuers' repurchasing strategies. We note the Commission
could easily address its concern about issuers publicly announcing repurchase programs
and then not using them by requiring an affirmative statement in issuers' periodic SEC
filings as to whether or not repurchases were made in the period covered by the report.
We do not believe the Commission should in any event require issuers to disclose
information about their repurchase programs more frequently than quarterly. Numerous
factors may contribute to issuers' decision to repurchase their stock at any given time.
If more frequent disclosure of repurchase activity were required (for example, on a
Form 8-K), the absence of disclosure (when, for example, an issuer temporarily suspends
its repurchase activity for any reason) could give rise to speculation about whether
material non-public information and/or pending transactions are preventing the issuer
from repurchasing. In addition, issuers with active repurchase programs may be
purchasing in the market every day for a substantial part of each quarter. A
requirement for more frequent disclosure (for example, on a "real time" basis) could
result in the overly burdensome task of making daily filings with the Commission,
thereby inundating investors with a constant stream of irrelevant data. Furthermore,
more frequent disclosure will not be informative because it is historical and is not
necessarily indicative of the future trends of repurchase activity. We have the same
concerns with a potential rule requiring prospective disclosure of anticipated
repurchases. Intentions can change in this regard based on many factors, including
changes in the level of cash available for repurchase activities, market activity,
and inability to trade due to possession of material non-public information. Should
the Commission consider adopting a rule requiring such prospective disclosure, it
must also consider the complex issues such a requirement would raise, for example,
whether such disclosure would constitute a solicitation under Rule 10b-18 or be
governed by the safe harbor under Section 21E of the Securities Exchange Act of
1934, as amended, for forward-looking statements.
Please contact the undersigned at (408) 765-9771 if you would like any additional
information in connection with the above comments.
Regards,
Patrice Scatena
Assistant Director of Corporate Affairs
Legal Department
Intel Corporation